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Analysts and Investors Discuss Dominant REIT Themes in 2012

11/27/2012 | By Carisa Chappell

With 2012 coming to a close, analysts attending REITWorld 2012: NAREIT's Annual Convention for All Things REIT talked with REIT.com about what they thought to be the dominant trends in the REIT industry in 2012.

David Toti, senior managing director with Cantor Fitzgerald, said the continued strengthening of the capital structure has been a dominant theme in the industry.

"Most REITs have sort of finished this process: Their leverage is down, and their long-term debt exposure has been mitigated. It's a much more fortress-like capital structure, which is important after what we went through here four years ago," he said.

Brian Jones, senior vice president and co-portfolio manager with Neuberger Berman, also offered his assessment of one of the prominent trends in the REIT industry.

"In 2012 we think that the biggest story has been the continued strong fundamentals within commercial real estate. Even though the economy has been on a modest growth pace, REITs have been able to generate, by our estimates, about 8 to 10 percent underlying cash flow growth," he said.

Keven Lindemann, director of the real estate group with SNL Financial said that while companies haven't been able to grow at the pace he'd like to see, they have been able to grow and outperform the broader market.

"If you look at it on a price-only basis, the REIT index has outperformed the S&P 500 by 200 basis points," he said. "If you look at it on a total return basis, it's more like 350 basis points outperformance. I think that shows us there is a demand from investors among companies that own hard assets, that are run relatively conservatively and that have strong balance sheets."

Lindemann added that REITs will be well positioned to benefit when economic and job growth picks up again.

Anthony Paolone, REIT analyst with J.P. Morgan, said that while the macroeconomic backdrop has deteriorated over the course of the year, REITs' earnings have increased.

"It goes to the durability of the cast flow streams that these companies produce. It's happening again in 2012, just like it did in 2011, and it's pretty remarkable," he said.

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